Biotech Movers And Shakers: Synthetic Biologics, Inc. (NYSEMKT:SYN) and Conatus Pharmaceuticals Inc. (NASDAQ:CNAT)


We have come to the end of the week in the biotechnology space, and it is time to round up some of the biggest movers in the sector. With earnings very much taking center stage, especially towards the middle of the week, we haven’t been short of volatility, and this volatility has served up numerous opportunities to jump in and out for the markets. A number of companies have put out releases that, while also trading opportunities, have compounded long-term sentiment in their respective market capitalizations. With this in mind, and as we head into the weekend, here’s a look at two of the companies of note.

The two companies we’re looking at today are Synthetic Biologics, Inc. (NYSEMKT:SYN) and Conatus Pharmaceuticals Inc. (NASDAQ:CNAT).

So, let’s kick things up with Synthetic Biologics.

This microcap biotechnology play is attempting to develop a lead asset called SYN004. It’s an early stage drug, and this is represented (or at least, evident in) the company’s market capitalization right now. However, during the session on Thursday, Synthetic and its shareholders picked up a boost on the back of some recent news. The company announced that the US Food and Drug Administration (FDA) had given the drug what’s called Breakthrough Therapy Designation (BTD). This doesn’t actually mean the drug is a breakthrough treatment, in the more common sense of the term; instead it allows the FDA to grant priority review to drug candidates if preliminary clinical trials indicate that the therapy may offer substantial treatment advantages, and we’re quoting here: “over existing options for patients with serious or life-threatening diseases”.

Synthetic is trying to develop its asset in a target indication of clostridium difficile infection (CDI); a condition for which a number of drugs already exist, but as is generally the case across the bacterial infection space, many people are resistant to the currently available treatments. This resistance necessitates constant innovation so as to allow physicians to stay ahead of the game, and with SYN004, Synthetic is attempting to pander to this necessity. As things stand, the drug has completed a phase 2B trial, and the company expects to put it through its paces as part of a pivotal phase 3 trial that will kick off before the end of this year. The BTD doesn’t increase its chances of approval, but it does bring with it a certain degree of expedition and therein lies the driver behind the action we are seeing in the company on its announcement. Heading into the Friday morning session, Synthetic is up close to 30% on its pre-announcement price. Chances are we will see some added strength from the company heads into the weekend, and as traders load up ahead of the phase 3 initiation.

Next up then, Conatus.

This one is a standard biotechnology move. The company announced at market open on Thursday that it was pricing a public offering. The offering will see Conatus issue 5.2 million shares of its common stock at a price to the public of $5.50 per share, which should translate to gross proceeds (before underwriting discounts, commissions and estimated offering costs) of an expected approximate $28.6 million.

Of the raised funds, the company intends to use a little over half for operational purposes and the remainder to repurchase and retire a little under 2.2 million shares of common stock held by funds affiliated with an entity called Advent Private Equity.

This one is a sort of two-sided situation. When a company issues to raise capital, it is dilutive to shareholders and markets will generally sell off on the company in response to the dilution. In this situation, however, nearly half of the funds raised are being used to repurchase and retire shares, which will reduce the outstanding base. The net impact will still be added shares nd dilution, but not to the degree that we would be seeing if the company just used the funds for operational purposes. As such, we have seen Conatus trade down on the news, but not too hard. At last count, the company went for a little over $5.50 per share, which represents a 20% discount to its pre-announcement price. In all honesty, this discount seems a little hash. If the company can use the capital raised to push it to its next catalyst (which is realistic, in this instance) then we should quickly see this gap closed.

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